What is a notice of default?

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If you fall behind on mortgage payments, your lender or servicer can initiate a foreclosure. The first legal step in this process is filing a notice of default. Here’s what that means and how to address it if you find yourself in this situation.

What is a notice of default?

A notice of default is a public notice filed with a court or local recording office to begin the process of foreclosure. A mortgage lender or servicer can file this notice after four months (120 days) of missed mortgage payments.

If your servicer files a notice of default, you’ll need to act quickly to bring your mortgage back in good standing and avoid losing your home. Aside from designating your home is in foreclosure, the default appears in your credit history and impacts your score, and potentially your ability to obtain a mortgage or other loan in the future.

What does a notice of default look like?

A notice of default typically includes:

• The borrower’s name
• The lender or servicer’s contact information
• The address of the mortgaged property
• The amount owed to date
• Details about how to bring the account in good standing, and the allotted time frame to do so
• Details about actions the lender or servicer will take if the borrower fails to bring the account in good standing

The notice might also include mortgage relief resources if you need help getting your payments back on track.

How does a notice of default work?

A notice of default filing is the first step in the formal process of foreclosure. Here’s how it works:

1. The borrower misses mortgage payments. When a borrower misses three monthly payments in a row, their mortgage is considered in default and the home in preforeclosure. At this point, the servicer has made several attempts to contact the borrower and offer mortgage relief options.
2. The servicer files a notice of default. Once the account is more than 120 days past-due, the servicer files a notice of default with a state court or local recorder’s office (depending on whether the foreclosure is judicial or nonjudicial). The borrower is notified of this filing via certified or first-class mail.
3. The borrower responds to the notice. The notice of default includes instructions to avoid foreclosure and bring the account up to date, typically by contacting the servicer to establish a relief or repayment plan. The borrower has a specified amount of time to respond to the notice and/or make up the missed payments. If the borrower believes the notice of default is an error, they can challenge it by calling or writing a letter to the servicer to explain the error. The servicer has 30 days from receipt of the call or letter to respond.

If the borrower and the servicer agree on how to resolve the missed payments, the case is considered settled. If the borrower ignores the notice of default or fails to reach an agreement with the servicer, the servicer can proceed with the foreclosure process, ultimately selling the home.

What to do if you receive a notice of default

If you’ve fallen behind on mortgage payments, haven’t contacted your servicer yet or have ignored your servicer’s attempts to reach out, a notice of default shouldn’t necessarily come as a surprise. You can still take action at this point, however, by contacting your servicer. Generally, servicers want to avoid foreclosure just as much as you do.

When you contact your servicer, you’ll be put in touch with the loss mitigation department, which might offer one or more of these mortgage relief options:

• Forbearance: If you’re experiencing a temporary financial setback, your servicer might offer forbearance to pause or reduce payments for a period of time. You’ll still need to repay what you owe.
• Repayment plan: Your servicer might offer you a repayment plan to make up the amount owed.
• Loan modification: With a loan modification, your servicer permanently changes your loan’s term, rate or both to help make your payments more affordable.
• Short sale: Your servicer might agree to a short sale, or selling your home for less than the amount still owed on the mortgage. The servicer will forgive the difference.
• Deed in lieu of foreclosure: With this option, you agree to transfer the deed to your property to your servicer to avoid a foreclosure sale. A deed in lieu might have less damage to your credit than foreclosure, but you’ll still lose your home.

Along with contacting your servicer, you can contact a HUD-approved housing counselor to determine your best course of action.

Notice of default FAQ

• What happens if you don’t respond to a notice of default?

  Ignoring a notice of default gives your mortgage servicer no choice but to continue with the foreclosure process, ultimately resulting in the sale of your home and eviction. Aside from needing to find a new place to live, the default notice and foreclosure will stay on your credit report for up to seven years, making it more difficult to obtain a new loan in the future.
  

• What is the role of the state court in the notice of default process?

  The state court is involved in the notice of default process by providing a legal framework for mortgage servicers to initiate what’s known as a judicial foreclosure. Not every state allows judicial foreclosures, however. Servicers in these states can pursue a nonjudicial foreclosure by filing a notice of default with the local recorder’s office.
  

• Can you negotiate or dispute a notice of default?

  If you receive a notice of default in error or weren’t notified of the missed payments and pending legal action, you can dispute the notice. The time frame for responding to the notice varies by state. For example, in New York, you have 30 days to respond to a notice by mail.